The Tax Theory in Conditional Pricing Analysis

By Jonathan M. Jacobson

Some commentators and courts have advocated or applied the so-called “tax theory” to antitrust law evaluations of bundled or loyalty discount problems. Under that approach, discounts the customer must forego if it patronizes a rival are considered a “tax” on the rival because the rival will have to offset the lost discount revenue to make the sale. Proponents view this as a type of raising rivals’ costs. This paper argues that the tax theory is misguided and sho